Well Rent Enters Price
When we are thinking. not of all the lands of the country, but of the lat available for particular uses. rent does form an element of cost and hence affects price. This is clear from the conception of the opportunity cost. Most of the land is capable of being put to alternative uses. If it is put to one use. it is not available for another use. The minimum price that has to be paid for the use of land is the amount which this land could earn in its most profitable alternative use. This payment for the use of land enters into price. From the point of view of an individual farmer. prices paid for all factors (including the price Cor the use of land) must of course be included in the cost of production. and must. therefore. enter into price. If a farmer is using land belonging to someone else. the rent that he pays is obviously a cost for him. In the case of an owner-cultivator, too. tile rent as a cost is there, only its presence is obscured. The payment that he could have received. if he did not cultivate himself. is the opportunity cost of this land. The problem may be approached in another way. Prices are determined by the scarcity of the products in relation to demand. The rent that an entrepreneur-neut ‘pays is part of his cost of production. If the rent is high, the entrepreneur will tend to hire less land; and, conversely, he will use more land. if rent is low. If he uses more land the supply of land for other purposes is reduced; if he uses less land. the supply available for other purposes is increased. Thus. rent. by influencing relative scarcity of land for different use erects the prices of different products. Thus. to use Samuelson’ s words. “What is a price determined rent return to a factor which is inelastic in supply to the whole community or a dominant industry may to each firm and to any small industry that is only one of many potential users.  appear as a price determining cost.””


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